moderated a little after that cpi number but still positive across the board almost 100 points on the dow the s&p would not be above 3,00 now. hopefully these sell side guys can get it up to 2850. make sure you join us tomorrow "squawk on the street" is next ♪ ♪ good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. it is powell day two this time banking after paving the way yesterday for a rate cut, steepening the curve by the most in a two-day period europe mixed bonds over there continue to see a significant selloff. our own ten year near 208. core cpi runs a bit warm our road map begins with s&p 500 3k

the ten-year bull market makes new history as the fed chair appears to make the case for a rate cut >> plus big tech is at the center of the president's tariff fights as france vows to tax some of the largest american companies. the white house hits back. >> and forget f.a.n.g. jim has a new basket of stocks to watch you saw it here on "squawk on the street." the s&p surpassing 3,000 yesterday for the first time ever after the fed chair did signal a rate cut is on the horizon. this morning it goes back to the hill, testify before senate banking. yesterday in front of that house panel, he was asked if a strong case could be made for lowering rates due to trade uncertainty and inflation short of the target this was his response. >> yes, as i mentioned, we think that uncertainty around trade policy and also global growth, it's not all down to trade policy there's something going on with growth around the world, particularly around manufacturing and investment and

trade. and so that uncertainty is, we think, weighing on the domestic economy. >> all right jim, the general takeaway. you're so positive, i wonder you think he needs to be cutting at all. >> no, i think he needs to be cutting because there's enough that's weaker in the economy and low inflation that means inflation target is not going to be met look, there's two economies. there's the economy that is the general aggregate he's looking at then there's the economies that are the little economies, the companies. companies are doing quite well look at delta. is delta being hurt right now with what the fed is talking about? no, but it's going to be aggravating to the large economist groups out there who are just saying we don't need that because business is good. last time we got rail figures, minus 5. the aggregate is bad, but individual companies are good. within a 5% decline of railroad traffic because of precision

railroading, the railroads make money. with delta, numbers are good, but delta spent a fortune on trying to make it so that each customer ends up paying more for fewer people so you get a lot of companies that have laid off people, specifically people who are middle-aged. you get a lot of minorities still not employed and he can make a strong case. look, i made a mistake he just doesn't want to say that instead, he says the president has got a tariff war >> what you're pointing to is not necessarily big revenue growth for these companies it's their margin improvement. therefore, earnings are going to be stronger in some cases. >> yes, exactly. >> although, we haven't really started earnings season yet. i wouldn't say things are looking particularly good. certainly not in the industrial economy. >> no, the industrial economy is bad. the industrial economy is not where you want to be but let's say you're doing at-home dialysis let's say you have been doing --

having rebates that make you a fortune. the president in the last few days has made it so that if you're an hmo, managed care, you're doing much better that doesn't have anything to do with powell, but that's just really fabulous. when you see those stocks go up, you can say, you know what, with humana up this big, what the heck is the fed doing cutting? they have nothing to do with each other they're playing gin rummy. i'm playing poker. >> david mentions fastenol, which is a big story today they miss on the top and bottom line those increases were not sufficient to counter general inflation in the marketplace in the third quarter, we continue to take actions to counter the broad pressures we're seeing on our costs. >> well, look, let's say you go to target. everything from china is a little more expensive. but they've been able to handle it and raise prices a bit. so there's a couple of companies

that have been able to do it watch, watch companies they've been able to deal with the suppliers and hammer them. levi's did not make as much money as it should why? because there are a couple retailers so powerful that they have pricing power again, pricing power doesn't necessarily mean they have more revenues does mean they'll make more money. look at these stocks you got to watch these stocks. >> you're going with w.a.t.h.c.. huh? you are the man who decides. you added home depot, which originally you hadn't included >> but home depot was -- look, i went on twitter, and by popular demand, i got w.a.t.c.h. a lot of negativists wanted

w.a.c.t. will you give me some credit here i was ready for powell to say, hey, look, f.a.n.g. is doing good >> i like it >> there's news on two of them today. costco comps in june, ahead of estimates. amazon, the fastest growing music streaming service. >> was that not unbelievable faster than apple, faster than spotify. and next week is a two-day national holiday perhaps the greatest holiday -- second greatest after independence day >> prime what is it >> we have amazon prime day, which is two days. can you believe -- now, will they close schools well, it's july. do we have to work yes. >> you work doubly hard on prime day. >> a hundred million people celebrate this holiday i've already looked at what i'm going to get my daughter is going to spain. they've been pushing me. they heard me, i guess, somehow with alexa

they've been pushing everything, including, you know, for whom the bell tolls >> ask not they are also embarking on, according to t"the wall street journal," a significant retraining program for thousands of their employees it's voluntary, but interesting to note. another potential benefit that amazon at least is putting out there. >> we're using w.a.t.c.h >> taylor swift did thank amazon by the way, the top-earning celebrity, according to forbes, yesterday. this is what taylor swift said about amazon >> thank you so much for having us i love you so much give it up for the band and the amazing singers. thank you, new york city thank you, amazon. >> so there's some publicity you just can't buy >> look, there's some people who transcend even what we talk about. >> she's bigger than you are, jim. >> she's bigger than u.s. steel,

for certain. >> her market cap is definitely in excess of u.s. steel's. >> she's signature she's got it right? taylor swift's got it. we should just run that the whole time while we're talking is there any reason they run a picture of me? >> it is interesting amazon continues to be able to innovate its scale in a way that so few companies are able to >> how are they so nimble? >> you need to continually recognize that it's not as though they aren't facing significant competition in music streaming they introduced that service, and by the way, it didn't gain a great deal of currency some prime people didn't even know it was available. they continue to its rate ander improve. >> do you remember the president attacking them on the postal contract remember when the stock went down a couple hundred just because the fed raised, you know -- jay powell raised rates. >> stock's up 50% since december >> how about when people said you should sell it because bezos

won't be focused because of the divorce. >> facebook is up 60-some-percent since december too. >> facebook is immune. turns out people like their name being sold imagine that >> there's a story across the atlantic france's senate has approved a 3% digital tax on companies like facebook, amazon, and google the move comes despite the president ordering an investigation into that tax, which the u.s. trade rep lighthizer says unfairly targets american companies they did launch a section 301 investigation into this as to whether or not it unfairly targets u.s. companies >> it does i mean, europe has been against these companies forever. this is a good way for europe to raise money. good way for france. don't you think italy does it next, david? how about germany? why not? now, we fight back what do we have we can put a tax on bmw? >> come on it's tariff man. you, by the way, said on this very show any number of times

you expect that there's going to be retaliation in europe or i should say, to germans in particular by the u.s. so why are you expressing surprise you think that's going to happen >> it's faux surprise, for heaven's sake. it's rhetorical surprise the president is having a social media conference is it to help facebook >> uh, no. >> how about twitter >> no, i think it's to help his campaign >> it's to help his campaign can you believe he didn't invite twitter? is there anything more important than twitter to the president in terms of communication and they're not there. and jack dorsey is not there >> this is not a social media summit i don't know why we've been calling it that. but that's not what it is. >> another faux. it's fake news >> a campaign event, getting people riled up. he's bringing a lot of the people who feel their voices are not necessarily heard properly on these platforms but it's not about actually trying to sort of deal with anythiany issue. >> every one of these countries, i think, have tried to use us as

a honey pot, our companies as a honey pot. >> oh, we're back to this, okay. >> yeah, we're back to it. >> if we retaliate to these taxes or whatever we want to call them, that would be bad, would it not, for global growth? >> yes, it would >> great excuse to cut rates >> there you go. international trade. but what do we bring in from france if we look at the raw numbers? >> in terms of imports >> yeah, besides wine. >> what do you mean besides? is there anything else >> cheese. >> yes >> i don't know what you're doing every day, chief >> oh, you chief me, i'm going to sparky you. sparky, listen to me >> last night we had a good night and didn't have any wine at all >> no, but tonight is a different night. >> yes >> i think this retaliation is easy it's a way to raise money. and that's just the way it is. it o is our president going to fight? you know what, he's got a

tougher situation fighting france there's just not enough. this is not china. >> he seems to have been particularly focused to a certain extent on automobiles from germany that would be, as you poinltste out, very significant. >> french fries. this is our anniversary. sadly, a lot of what brought us together >> i'm told in terms of exports, aviation, planes, turbines, in addition to wine and cheese. >> that's right. >> those planes are really made in mexico. >> perhaps a suboptimal deal >> ill-advised move by jeff immelt actually, one of his few

transportation is not that good. you know, there's a list >> don't forget the sales that took place >> right, turbines when he comes on our show, larry, the ceo, and he says these are turbines, then i know it's a new ge. even steve will have to silt up and take notice. >> when we come back, day two of the fed chair's testimony on the hill is going to get questions from the senate this time. when we come back, we'll talk about how the q&a might differ from yesterday's we'll get to bed, bath, delta, lockheed, and other names. futures look good. we're back in a minute

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shares of bed, bath under pressure earnings did meet expectations, but the retailer posted a big overall loss due to charges and severance on other cost. same-store down 6.6. analysts looking for 5.5 bespoke has an amazing stat,

guys for eight of the last nine quarters, it will gap down 5% on earnings that's crazy >> yeah, i mean, remember, this company even bought back stock this quarter 5.3 million shares >> they bought another $81 million worth of stock back, jim. >> i don't know. six years ago, the stock was at 80 they were buying back stock. >> how much money have they spent on stock buybacks over the last five years? >> john duskin has those figures. he's one of the activists. they're just humongous they have $900 billion left. they have a lot of stores, and yet, i think target is targeting them target looks -- like, the second floor of a target looks like bed, bath. i think mary winston, she's the interim ceo, but there was nothing. she said, we need to give our customer a reason to keep

shopping at our brick and mortar stores well, yeah, a reason i mean, that's a raise on debt >> like the guy yesterday who said we need a strategy. we have one. >> that was levi's they have to upgrade and enhance their store experience steve was trying to upgrade and enhance the store experience for a decade i don't know i know dustin is real good he's the guy who's done some turns. he's the activist here, the driver but wow, i don't want that ceo job. now, they've already done some things in the interim the last month, but brian cornell, the great ceo of target, i think he's gone in for these guys. you can't have a company as well capitalized as target gunning for you while you have stores that have 42 different kinds of hangers, 72 different kinds of skillets those are exaggerations, but how

many different trash cans do they have? >> a lot >> how about eight sets of hangers. >> you know who makes a lot of those? china. >> then they import them you know, bed, bath is really -- >> let's not forget, on china, we haven't gone to the 25% on the 300 billion, but it's still possible >> and some of the tea leaves today not encouraging on the chinese not wanting to commit to certain ag purchases >> different members of their negotiating team >> that's why jay powell is right. remember, after the last one where -- the last meeting, the g20, remember the president said on twitter, they're going to buy big. >> and navarro came on our air a couple times and said big, big, big. >> i think he used big, big, big. so far, small, small, nothing, nothing, nothing i think maybe powell is ahead of the failure of the trade talks and that may be what he has up his sleeve >> powell says he has nothing to do with that whatsoever. >> it's not his job to read

trade. >> not in my purview, pal. >> you guys figure that out. >> he should use that purview line i want him to use the word purview. then i know he watches does he watch? >> i don't think so. >> i think he listens. that's why when david does the silent stuff in reaction to me, powell must have no idea what david is saying. >> cramer's mad dash is coming up and the opening bell. watch amazon market cap today. awfully close to a trillion dollars. futures are good back after a break my experience with usaa has been excellent. they really appreciate the military family and it really shows. with all that usaa offers why go with anybody else? we know their rates are good, we know that they're always going to take care of us. it was an instant savings and i should have changed a long time ago. it was funny because when we would call another insurance company, hey would say "oh we can't beat usaa" we're the webber family. we're the tenney's we're the hayles, and we're usaa members for life.

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welcome back time for a mad dash on "squawk on the street" this morning. we get news that the white house has killed what it's called a major drug pricing proposal that would have gone after the so-called middlemen or the pbms. >> right >> and therefore, stocks like cvs are benefitting. >> very good for cigna, mckesson what it's really great for is cvs. a lot of people felt that -- by the way, you asked about what we bring in from france merlot larry merlot bought aetna. it hadn't been working you have that judge who's still in some type warp who thinks he can stop the deal. >> kings of leon >> i love that he's just out there. next week he may -- >> no love lost there. >> no, no. but this is the second thing that was good for cvs. earlier this week, the president came out with this executive

order reforming kidney care. that's also good cynics would say the president likes cvs. not cbs, david two wins for them. >> this is bad for the pharmaceutical industry? >> yes that's why like an eli lilly, who might have positive news for migraines, it's being ignored because people are thinking, as morgan stanley says, this is a setback for the drug companies >> because they would have conceivably gone after the pbms. >> yes, right. >> now they may go directly to the pharma companies >> who is they >> i don't know. all i know is this is not pretty >> well, this is when you take down a lot of debt and they come after the managed care companies. this is when you pay back debt and the president says, i like the managed care companies in so many words >> that's a lot of market cap, though, jim. >> because it looked like a real

bad idea very big short position on cvs >> all right we got an opening bell coming up, but don't go anywhere. five minutes until we get the ring

you're watching cnbc "squawk on the street" live from the financial capital of the world opening bell in just about two minutes. another busy day, of course. powell on the hill once again as we might get a crack at 3k as well >> did it for a while yesterday. it's hard to try to figure exactly why we gave it up, but i think this whole narrative is he's doing it because weakness in corporate america weakness is contained in these exports. we just went over cvs, okay. they're not affected by this by the way, the core cpi that came out, i didn't think it was even that bad. clothing was one of them that went up. that was a tariff. now it's coming down again it's coming down because a jcpenney is, they got to flood the channel. they have to close quickly >> worth mentioning that crude oil has been moving up lately.

wti -- >> oh, there's a hurricane that's a hurricane >> so there's some action in the strait of hormuz >> intercepting tankers. >> we have oil coming out our ears we hit 12 million a day. >> formerly the ceo. >> yeah, icon after making a ton of money but we're just swimming in natural gas. if you can -- we have so much natural gas. you know they burn more than we use. >> i know we have enormous amounts, but we can't get it to where it would be used but we're working on that. but oil, you don't think -- >> no, no. >> you're not worried? >> no, all my sources indicate just short it. just short it. it's $60 our guys sell the futures, they need the cash flow and a hurricane. i fished off of gulf rigs. you don't want to fish off them in a hurricane

>> i mean, what could be a supply shock now in this new world. >> i think we'll be 13 million a year from now. then 17 million three years from now. >> 17 million? >> not a problem not a problem. 17 million barrels a day where is that going to go? i mean -- enough keep ringing can't even think hard to think. no, we're going to be at 17 million barrels in three, four years. >> that's crazy. >> we're swimming in it. >> there's the bill, as jim mentioned. that was a long one. the big board is bancorp of new jersey doing the honors. financials, speaking of which, did feel the heat yesterday. >> yes, they did that was part of the thing that rolled over. that and some retailers. goldman came out with a piece basically saying that w.a.t.c.h. is fantastic that's my acronym that's already -- i'm told there was an

etf set up in the last five minutes. that's the way it works, right these etfs, they hear the show, they set up f.a.n.g. now they're furiously setting up w.a.t.c.h. etfs. yesterday retailers were down because they were reacting to how powell is saying there's weakness how stupid is that there's retailers that are good, then there's levi's talking about there's a huge number of retailers closing. >> that's very colorful, too i like that. i like the color choices of our production team. very nice. well done. congratulations, jim >> thank you, david. >> you're welcome. >> thank you i appreciate that. >> actually, the people who build the wall for us are amazing. they do amazing work >> can we build the wall sorry. >> you would probably think it's a reagan berlin wall situation because it's mine and not yours. >> that's very nice. i like that. >> yes >> jim, you mentioned delta earlier this morning they appear to be firing on all kinds of cylinders

bastion talking to us on squawk today. first-class load factor continues to storm ahead >> look, it's a time for all the airlines we've been saying things about american, and even american has come back. united is doing really well. the group is flush the amount of free cash flow of delta. do you remember when they had negative cash flow >> i mean, for almost all of its existence after deregulation, the u.s. airline industry was not able to earn its cost in capital. and then, what happened? >> well, they let everybody merge. the justice department of obama is not nearly as tough as the justice department of trump. >> it's kind of a surprising thing, but it may end up being true >> not far from an all-time high 61 and change. >> they're shrinking k b, can b backstop nobody competes. there's a lot of -- i don't know, i shouldn't say that somebody is going to say

chicago, they compete. >> a few that compete, i suppose, but not a lot of course, they charge for everything now >> no exposure to the max, obviously. >> right yeah, that's a really good point. southwest is still lagging but very impressive quarter. they're doing very well. now, immediately someone is going to say, why did jay powell talk about -- no, they're doing well because of an oligopoly >> guys, we began this week with a bit of a focuson deutsche bank, if you recall, given that massive restructuring undertaken by the bank. i had doug bronstein, a large investor, on just a note while investors were digging through the ramifications of that restructuring, the u.s. now has taken a look it's money laundering again. this time, the u.s. justice department, according to "the wall street journal," investigating whether the german lender violated foreign corruption or anti-money laundering laws in its work for,

guess what, 1mdb, that malaysian fund >> the billion-dollar whale. >> they're discussing in relation to goldman sachs, now deutsche facing some potential liability. potential, it's an investigation. >> the president says that it's maligned spelled right. i think what's happened here is that there's got to be -- a lot of people are betting it's going to be a giant equity offering, a rights offering. so that's why the shorts keep leaning on it. but the news flow is hideous it's just terrible >> and that's one reason why it trades at 25% of tangible book value. these other concerns forget just the mismanagement that took place under previous administrations at deutsche bank but this concern about some of these unexpected things, such as money laundering or what will happen >> i'm going to give david a quiz >> uh-oh >> yeah, david, what's the

largest bank in europe >> it's the -- that italian bank >> that's the oldest bank, for heaven's sake. stay focussed. >> largest bank in europe. >> i used to make fun of the name but don't anymore >> that's amazing. >> at one time, i wore a mata matador's hat. i embarrassed myself >> i imagine you believe the weakness in european banks continues to provide runway for u.s. banks >> yes, it does. you try to get an italian bank to do anything, no german banks, no french banks, no i mean, swiss banks, they're not even part of the whole complex so yeah, i mean, this is when jpmorgan should say, all right, we are -- citi can do it.

but this is just one of those moments where it's just fantastic time for the banks in europe but there's just not enough business going on in europe to make a difference. italy in a permanent recession the lamborghini does not seem to change their fortunes. what a car 180 miles an hour my wife and i on a city street >> really? >> yes, on a city street and their new crossover, oh, my. the $200,000 crossover, not the $450,000 car my wife says, jim, i think it's time >> really? >> i said, no. >> drive one of those around out in the hamptons? >> no, it's never time >> we're going to get citi, jpm, wells starting monday. >> i think other than wells, they'll be okay. >> will we be focused on trading revenue? >> we really should be talking about net interest margins, not good trading revenue, not that good i think solomon is building a new goldman. that's going to be up off the

table. bank of america, i think someone says this stock must always trade at 29. wells, they better name a ceo. they got to. >> they're having a rough time finding one maybe. i don't know >> well, bed, bath and wells two outfits that can't really find ceos. how do you not find a ceo for one of the largest banks in the world? why will no one take that job? i'll take it twist my arm >> you're already going to be fed chair. >> fed chair, head of wells. i got a lot of things on my plate, and i'm not worried >> do you have to check in with elizabeth warren first >> fed chair >> no, to find the ceo for wells. >> yeah, why not >> get mothher blessing >> i've had her on the show a number of times. >> i know. >> warren buffett, i think, still plays a role in getting the ceo. i cannot believe they can't find a ceo. i mean, it's -- what is everybody afraid of elizabeth warren why can't they find a ceo? executive search, get someone.

can you get it >> i don't think so. >> let's put some names out there. >> they'll find somebody, i'm confident. or mr. barker will continue in that role. >> i don't know. who else mcinerney is retired who else >> guys, worth mentioning as we talked about in the mad dash, but the big pharma companies are down fairly substantially. merck, pfizer, lily. >> j&j >> all down rather sharply >> they're all buys. >> originally an axios story -- >> oh, give me a break. >> the administration is giving up this original plan it had to go after the pbms in terms of trying to attack drug prices >> every one of those quarters is going to be fabulous. the people selling the stocks are fools. they're the people who sold pepsi. >> other pbm related companies are up cvs has a lot more than a pharmacy benefits manager, of course it's got an insurer in there a huge retail.

>> what an opportunity for eli lilly. unless the migraine drug is really not as effective as people think on acute care this is a good moment for lilly. i've been so stupid owning that. i've been trying to buy stuff at cvs every day to boost that quarter. >> yeah, my family seems to have bags coming from cvs a lot although, they're going to get rid of those plastic bags, maybe. >> single-use plastic bag, forget about it. >> and the receipts. >> love the receipts >> the millennials hate the paper they use millennials are amazing. i mean, wow. they hate dow chemical so much >> this was a $70 stock not that long ago >> you have amazon in the front of the store, right? >> yeah. >> hurting them. then in the back of the store, you have the rebates, but the rebates looks like they're back. and by the way, the front of the

store is run better than it used to be. you talked to brian cornell, he likes -- remember, there's a cvs in target. and it's doing okay. david, it's a wellness company can walgreens ever be a wellness company when they sell tobacco i cannot wait until your special. can i talk about it yet? >> oh, yeah. we're promoting it monday night >> look, to me, the juul, i'm going to make this clear go to a party with people who are teenagers, what are they doing? my wife took aware four juuls at a party. >> from younger people >> yes now in, of course, juul will say, i'm sure, we hate that, too, jim well, take away watermelon juicy fruit. here, have a juicy fruit >> i like juicy fruit. >> they'll probably develop a vape for you >> remember "one flew over the

cuckoo's nest" something wrong with juicy fruit? >> no, when it's put in a tobacco form >> oh! >> there's nothing that juul hates more, right, than people underage using their product that's what they stand for and did they tell you that this is how you drop -- you get off better than the patch. did they use that? >> part of their argument is it helps cigarette smokers switch >> oh, they're so great. just a great bunch of guys i'm going to give them the nobel prize for lung cancer. >> guys, before we get to bob, i call this the endless waiting game, a couple things i'm waiting for. each week goes by, and we wait until the next week. cbs/viacom, still waiting. >> is that what's happening? >> they're talking it's taking a long time. maybe you get something next week >> who is talking? >> a real interchange around price. the boards are having back channel conversations. the advisers are talking they are talking, but they have

not yet gotten to talking about -- this is the sprint deal that one also we're waiting on >> good segue. >> yeah, i was talking about the other one. back and forth we're talk about cbs now >> the chairman of the cbs board, he's also -- probably the best looking 60-year-old in the country. >> amazing >> his book is incredible. ostrich meat is one of the things he suggests is it backish talking? >> there are conversations my point is -- >> what, do they talk every day? >> well, really, i think it's more the cbs board that's got to finally bring its offer in terms of an exchange ratio to viacom, which has yet to happen. >> is les moonves involved in any way? >> no, no. >> just asking don't get mad at me. >> why would he be involved? he's not involved. >> because he was cbs for a long time i thought it was -- >> no longer with the company.

>> i just thought a gratuitous reference was a good idea. >> the other endless waiting game is the doj and those continued negotiations >> oh, my god. that's forever >> sprint, t-mobile, and dish. there's taylor swift, thank you. she's probably involved in those negotiations too if they got her involved, i bet it would get done a lot quicker. she's serious. >> i am a bob backish fan. >> by the way, i will point out there still is confidence that they are going to reach an agreement with the department of justice, even though there's differences of opinions from the germans versus t-mobile. eventually they'll all get -- everybody gets on the same page. but each week goes by. you can't close the deal anyway until the california public utility commission actually signs off. >> this is just going to drag on david can do a weekly update show on this >> that's what i do do that's what i just did an update.

>> a journal piece on pg&e yesterday. pretty incredible. >> more incredible than james stewart's piece today about epstein? i think epstein is a business story. there's too many people involved at this point that this is not a business story all of us are trying to get our arms around it >> yep we briefly got above 3k. 2,999 right now. let's get to bob >> i'll show you why we got there in a minute. let's look at the sectors. the reason we got to 3,000, it was tech and consumer discretionary. a little help from health care you heard about the trump administration reportedly proposing to eliminate the rebates. that's helping health care but consumer discretionary, one big reason we got to 3,000 that's basically amazon and home depot. we got tech. that's the main reason you know the ten tech companies that really matter i'll show them to you in a minute industrials lagging. i love fastenal.

it's a small company, $19 million market cap, but it's a canary in the coal mine. they make fasteners, machinery rv revenues were light that was the main concern. the important thing about fastenal, they're in a multiindustry space. they basically supply equipment to other industrial companies. that's what happens. all things around here at the nyse, all sorts of fastenal products on the wall very important company overall, even though small market cap down about 4%. look at the impact on the other industrials. granger, another company that operates in the industrial supply space, flattish here. caterpillar flattish tech tron a little down. these are better than the open but j.p. hunt, these are the shippers, logistics companies. the highlight of the week is logistics and transports as another sort of canary in the coal mine. speaking of trade here, we've been trying to figure out where the trade talks are. "the washington post" had a story on this, this morning. basically talking about the lack

of progress on core issues there was a reshuffling of the chinese trade team, not clear exactly what that means. no big new purchases of u.s. farm goods, and no real date for the next round of talks. we're sort of in limbo on this the market is continuing to believe something is going to happen, but we don't see any real progress right now. as for the road to 3,000, we broke it down yesterday. from 2,000 to 3,000. that was five years ago when we hit 2,000. since then, of course, 2,000 to 3,000, the s&p up 50%. but what matters what really pushes us forward is technology, up 113%. these are the biggest companies. these are the ones that matter and that move it the consumer discretionary also really pushed it up. that was largely amazon and a little bit of home depot my point is, it is astonishing small number of companies really moving the markets right now let me show you some things that have moved for us to get to 3,000, the 50% move, what companies moved us there? microsoft was almost 7%. the reason we got from 2,000 to

3,000, microsoft was 7% of the gains. amazon was 6%. apple was about 4% facebook, 3% jpmorgan, surprise there, that was about 2% you put it all together, the top ten companies in the s&p were 34% of the gain from 2,000 to 3,000. the other 490 were the other 66% of the reason that we went up. that's my point. you see, 10, 15 companies are the ones that matter if they move, the whole market moves and nothing else really is that important overall why are these tech-oriented companies so important why are people doing anything to get ahold of them? that's where the growth is that's where the majority of the world growth is. investors will pay anything at this point for growth. carl, back to you. >> bob, as you're talking, got dow 27k for the first time let's get to the bond pits rick santelli, good morning. >> yes, some historic markers going on look at the three-day chart of

several parts of the yield curve. let's start out with two-year note yields. you can see that they are definitely right side lower than the left side. now, let's move down the curve let's look at ten year what a difference. as a matter of fact, here we hover at 2.08. should we close here, this would be the highest close in about four weeks since the 17th of june remember that date i'm going to use it again. now, tens to twos, the spread. a lot of air time and deservedly so one of the big issues, and we could talk about how much it impacts banks and a lot of reason the steeper yield curve is better, maybe the biggest reason is the inversion with three months to ten year is causing a lot of model odds, think federal reserve here but it has steepened i'm sure the trigger of fed easing has a lot to do with it we had cpi data today. even though chairman powell seems to be stepping on the notion not a lot of heat in the jobs market and deterioration, as a data watcher, there has been deterioration, but there's

still lots of heat left in this economy. you see on that spread how much it's moved just since -- you know, that's since the 20th of june how dramatic is that chart now, let's look at bunds this is something you pay attention to bund yields, even though they're at minus 23, my head is going to explode, that's a one-month high yield. that's a one-month high yield. we were well into the minus 40 pluses the reason and the catalyst is that there's an interest rate differential going on. there's curve issues going on. but maybe that euro, as we ease, is something positive for the market finally, 6.17. that's a level we haven't seen since about the same time as our ten year carl, jim, david, lots moving in the fixed income markets back to you. >> rick, see you in a while. yesterday's powell rally did send the s&p above 3k for the first time the fed chairman goes to the senate side today for another

day. you're going to want to see this q&a, which some say may center more on actual fed policy as opposed to minimum wage. >> unless he uses purview. >> s&p 3k right now, back in a moment woman: my reputation was trashed online.

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day two of powell on the hill moments from now. the federal reserve chairman will testify and take questions before senate banking. we will take you there as soon as q&a begins. meantime, good thursday morning. welcome back to "squawk on the street." i'm carl quintanilla with sara eisen and david faber at post nine of the new york stock exchange dow 27k for the first time ever. s&p 3k for the second day in a row. >> fed chair jay powell on the hill day two this time in front of the senate banking committee after a full day of grilling from the house plenty of questions remain steve liesman joining us from washington with more how interesting to have good data, steve, after the fed all but promised a rate cut yesterday. >> it plays in, sara with federal chairman jay powell

all but answering the first and most important question of what the fed is doing in july, it's cutting. two more questions raised for today's hearing before the senate one, how big a cut and two, after july, how many more here are the fed problem kts going into this. the chance of a cut in july 100% the chance of 25 basis points 80%. and the chance of 50 at 20%. that was around three yesterday morning before powell spoke. jim o'sullivan writes powell's comments were dovish enough to keep alive the possibility of 50 basis points rate cut thismont we still think 25 is more likely the market looks priced for 75 basis points or 0.75 percentage point of easing the rest of the years. 100 for july 76% for september. 54% for december for that third cut. those probabilities down a bit after what sara just mentioned, this morning's economic data

contradicting some of what powell was saying. inflation hotter than expected and jobless claims suggested the labor market may have heat the data supported the view of critics who said now is not the time to cut, sara. >> all right i have a 100 questions for you, steve. >> okay. >> but so is it more problematic potentially for the economy if the fed cuts interest rates when it doesn't need to in a good economy, or if the fed doesn't cut interest rates and the market throws a tantrum because the poll i icy is too tight >> i think the answer to that question is yes. >> i'm wondering what the risks are. should we be talking about the consequences of the fed going too early or unnecessarily >> let me parse that two different ways from an inflation standpoint i don't think there is a lot of risk to a cut that may not be needed i think you have inflation i think the risk to going when

they shouldn't be going is more long term and it's excesses in the economy that build up over time the question is whether or not the federal reserve in the post-crisis era has the tools to deal with a build-up in risk in the banking system in a way that creates a problem of systemic risk they are sort of separate questions. they are good ones the tlg thing is you don't have a lot of talk among fed officials about the worry regarding the risk of excesses in the economy and in the markets. >> steve, i have to ask you about this backup in german bund yields and if that could preceja backup of our own and the french industrial production and the german inflation numbers we have gotten this week >> yeah. i mean, it's a small bond world after all, isn't it, carl, right? and that's a lot of what's animating the federal reserve here the idea that it can't get too far from where the others are. that's another answer to sara's

question the fed found that there is a risk to going too far away from where germany and japan are and that it can't be this really differential interest rate that's so much higher than other places part of what the fed seems to be engineering is a move back towards those rates. >> steve, don't go anywhere. vice chairman of private wealth solutions at blackstone. byron, good morning. >> good morning. >> is today an opportunity for powell to say, yeah, you might get july, but don't count on much after that? >> i certainly hope that's what he does say. i'm in the camp that the economy doesn't need a cut in rates. and with rates already so low, i don't know how much good it will do anyway. i think steve is right on. it isn't going to add much to inflation. and the economy created 224,000 jobs last month.

the economy is growing at better than 2%. that's as much as you can hope for in a mature economy like the united states. so i don't think the fed needs to do anything i think, you know, to cut rates in order to steepen the yield ser curve is not a good reason. >> so all the talk about cross currents and corporate uncertainties and the debt ceiling and brexit, were those convincing reasons yesterday >> you know, i think that trump wants a rate cut because he wants to get the economy growing at 3%, not 2%. but it is not in the mandate of the fed to get the economy going at a hotter rate the responsibility of the fed is full employment and low inflation. and we have full employment and low inflation, so the fed needs to do nothing. >> and we've got record highs

now on the nearly on the dow, s&p, and nasdaq, byron how much further can this fed easing cycle actually carry the markets higher >> well, i think that the market is anticipating the 75 basis points that you talked about earlier. i'm hopeful that we don't get that so on that basis the market is getting ahead of itself. my own view at the beginning of the year, and i was on this program to say it, is that the market was going to be up 15% this year. it's already up more than that it looks like it's headed higher still. i believe it should consolidate during the second half and not roar ahead as it did in the first half >> what do you think the move in gold is telling us >> the move in gold is telling us that the uncertainty is increasing it's not telling us anything about inflation, i don't think, and it may be telling us

something about geopolitical uncertainty. but i think people are losing confidence in financial assets, and so they want to have some of their assets in hard assets. >> you have also seen a little bit of dollar weakening off the back of powell yesterday byron, it's pretty incredible to see the president so focused on weakening the u.s. dollar. we really haven't seen that in a long time. in comes in tweets it comes in campaign rallies it comes in his talk of trade policies and renegotiating treat tease with other countries do you think ultimately the president can succeed in weakening dollar >> i hope not because i don't believe a weak dollar is good. i mean, it may help our exports, but basically i can't think of any president before trump who argued for anything other than a strong dollar. a weak dollar is good for the

emerging markets, but i don't know if it's good for us >> certainly the trade impasse with china and its continued potential impact on global growth is going to be a subject that chair powell will deal with it's worth mentioning a tweet from the president about three minutes ago because it does at least reference what may be a little more tension with china again. he says mexico is doing great at the border but china is letting us down and they have not been buying agricultural products from our great farmers that they said they would. hopefully they will start soon this tweet accompanying some reporting today as well in talks about the chinese negotiating team having changed a bit and pointed out the fact that they have not followed through on what the administration previously said, guys, would be fairly large purchases. >> how big of a risk, byron, we are not moving towards a china trade deal >> it's a big risk i think the market is counting on a deal before the end of the

year i think that that and additional rate cuts by the fed are the two things that are propelling the market forward here. i think we need a deal i think china needs a deal more than we do from an economic standpoint we need a deal politically trump needs a deal to campaign on it. but china needs -- u.s. purchases of goods from china is 5% of chinese gdp. they can't afford to lose that. >> byron, meantime, where is your head on asset prices as we continue to toss around what the fed may or may not do on a day when we get 27k and 3k >> my feeling, as i said earlier, i think the market should consolidate around 3,000 on the s&p during the remainder of the year. i think interest rates on the

ten-year are too low i think there should be a tropism in the bond market to move back towards 2.5 on the ten-year >> and a trade deal, if we got close to one or actually got one, is that positive for prices or not >> it's definitely a positive. but i think it's already built in, carl i think the market already is counting on trump being able to do a deal with xi jinping. >> so if powell is going to face - >> so the market is -- sara, a moment. >> yeah. >> the market is built in good news on fed easing and good news on china trade if those things don't happen, then the market is vulnerable. >> yeah, so you're saying there is room for disappointment i was -- we are looking at powell he is now before the senate banking committee. we wi there will be a series of questioners, including mark warner, elizabeth warren will be

interesting, byron how do you see the election shaping or impacting the markets? i know you always put that in your predictions for the year of who you think is going to prevail. i am curious if you have any early ideas on that and generally how it's going to impact stocks. >> first of all, they are not predictions. they are surprises. >> oh, surprises excuse me. >> yeah. >> you say that every time we know it's true. >> you are like everybody else, they think they are predictions. to some extent they are. look, i think the market is afraid of the more progressive democratic candidates. so warren, kamala harris and bernie sanders are kind of terrifying to the market. >> and if one of those is nominated, i think the market reaction would be negative i think the market wants a moderate somebody like biden. but because of biden's faltering

performance in the debates last week, the week before, my feeling is that biden is less likely to be a candidate so i think the market is assuming that trump is going to get a second term and the market likes that >> certainly approval numbers would lead one in that direction. one last thing, byron, on-up europe is the sense the back half of the year for europe is an improvement over the first, or not? >> i think yes i think there is optimism about the u.s. and i think there is optimism about europe, but optimism about europe has a different definition than it does over here that means europe will grow 1% to 2%. i think europe has become comfortable with the fact that there will be a hard brexit and europe will survive without the

u.k. and so will the u.k. survive without europe. >> certainly a lot of the corporate commentary says we prepared as much as we can for a hard brexit. byron, thanks for setting us up today. hope to talk to you soon. >> hope to be back to see you before too long. >> bob pisani joins us at the desk we are 3,000 on the s&p. i'm not sure how much impact that tweet from the president had. perhaps a bit, sort of once again reminding people things with china, while at least are back on in terms of talks, doesn't mean they are necessarily going to get to a deal anytime soon. >> the concern is there is no date for the next round of trade talks. "the washington post" had a good summary this morning not only are they not buying new products they are reshuffling the negotiating team there is no date set for more detailed talks byron hit it right

the market has priced in the trade talks happening. we talked -- we went round aon this a month ago he was at 2600 10% to 15% downside if nothing happens this year. you know what amazed me yesterday about powell how civilized the discussion was. it can get out in left field from some of these people, yet it was veriful i thought some of the answers were cogent, the answers were cogent the discussions on bitcoin and concerns about money laundering from powell i think were very cogent the discussions on income inequality he went to at length about it to several -- in response to several questions. he talked about the natural rate of unemployment, how it's much lower than people thought, how that means they may not have to cut interest rates as much that's a theory around for

decades. he basically talked about that it was really interesting. i think this indicates that the congress, at least the house there, is very supportive of him. obviously, they all believe rate cuts are coming. nobody is sitting there saying you are not going to raise rates. they are with him on that. but i was surprised at the degree of support that republicans and democrats showed for him. >> in part, sara and i have discussed this, bob, and he made a real effort to speak with these people regularly, representatives and senators some of that may be part of conversations he has been having closed doors in their offices. >> it paid off. >> he reports to congress. not to the president. >> on numerous occasions republicans and democrats say i want to thank you for your transparency, openness i was in your office the other day. i was on the phone with you. you came tour offices numerous times. so his outreach program and whatever he is saying to everyone is working because i think he has a tremendous amount

of good will we are going to turn to earnings, folks. i know, david, you mentioned fastenal today. >> you did as well. >> i love fastenal because even though it's a small company -- >> not that balsmall. $18 billion. >> compared to caterpillar, it's a multi-industry space they sell out to -- you walk in the new york stock exchange behind the walls is there is thousands of fastenal products they make things that hold pieces together basically. >> yes, it's in the name. >> the machinery, they make tools. so a lot of industries have their products -- and if they are a little light, people notice it. that's why you see the flattish industrials today. the shippers still out there, the ch robinsons of the world, land stars, big problems in the last month or so they haven't recovered even with the rest of the market recovering so that's going to be the big issue. i think caterpillar is july 24th that's the big one. >> yeah. >> fastenal is a good leading

indicator for those kinds of commentaries overall. >> thank you. >> okay. >> let's check in with rick santelli at the bond pits in chicago as we awade fed chairman jay powell, day two. what are you hoping to hear, rick >> i don't know that i'm hoping to hear -- i guess i would hope to hear that he changes his mind on the rate cut or defends not doing the rate cut but we won't hear that it's pretty much in the cards. what isn't in the cards in my opinion, and it's a bit surprising, is the way some of the other markets around the globe have responded i know i have heard people say today we're trying to calibrate our monetary policy to more mirror europe's. i certainly hope not i hope a center asks our chairman that question that answer would give a lot of volatility to the markets. nonetheless, there was a question there look at our yield curve. dramatic steepening. what happened in europe? kind of the same thing, but the aftermath is, is that if you look at the spread between tens

and bunds it's volatile. we want to pay attention to that if that spread can hold or their owe bhwhile rates actually move higher, that would be a terrific thing for the globe. it really would be and i think that interest rate differentials, speculation how all the currency issues will pan out, they are going to make a lot of volatility. but steepening curves on a sovereign basis that's correlated is a good thing if one cut can be the catalyst to that, then maybe it is worth it because to put the guise of inflation makes zero sense if we give one away, we have given 11% of our insurance away against a real downturn. not the kind of nervousness that exists when we are sitting on all-time highs on stocks. >> which gets at a question that's going around right now. i wonder how you would answer it, rick, which is are we going

the way of europe and japan we are not in negative yet we have been tightening and going the other way. now that we are michael th-- making this seeming u-turn with the fed, looking to cut in july, is that where we are headed? >> a two-part answer first is if we start giving away quarter point tightenings too easy we will be left at a place where we really see a recession, where the possibilities are that negative interest rates could occur. that's why i'd like to save those quarter point increases. the second answer that is to do with jay powell's answer to a european japanese inflation issue yesterday. he said the reason they are in negative rates and not making a difference on rising inflation or making it go higher is because they have just left it at unruly levels being too low too long that's a scary answer because what i hear when he says that is, is that, yes, you know, negative rates and all of this, you need to combat inflation but the examples he is showing demonstrate the exact opposite

that no matter how much easing and stimulus you show, the reach of a central bank in the global die and age we living in does not help on the inflation side or to the extent of the damage it does to every other area of the economy. >> rick, i think you as very in tune with the markets, especially the bond market you are sayi why is the bond markets saying we are going to have three cuts potentially this year? >> if i took a snapshot you of ten years ago, at the time it looked just like you does it look exactly like you today? that's what fed fund futures are. a snapshot at a moment in time i could run into that pit and consummate a trade if i had my badge on if i go to the broker in an hour and i have a i want to do more of those you know what he would tell me that trade is gone that place in the marketplace is history. that's what we look at for fed fund futures

it doesn't mean that the snapshot in three weeks, three months is going to look anything like that. >> although, i mean, july 31st is not that far away, rick, right? it's a matter of days? >> well, and it doesn't even matter how much any of the snapshot changes at this point jay powell, the biggest enemy of everything right now is volatility we could call it rates, inflation. it's volatility. all of these markets are packed tighter when volatility is low we know what happens when you shake up the vix going nuts is not anything that jay powell and company want. if they haven't fought back by now on the notion with the markets, static snapshot recently shows they are not going to that cut is going to happen. >> all right rick, there has been a lot of analysis of the past nine instances where they have hiked and really going back to the crisis the fed does not like to

surprise i assume you are on board with whether we like it or not, we will get 25 basis points at the end of the month >> absolutely, absolutely. what i would not bet on is how much you are going to get, if any, after that. especially, you know, 16 months in a row that cpi core is 2% handle i think we make this all too complicated. i just don't see central banks having much success controlling prices and i think they do lots of bait-and-switch on what full employment is. >> there is a huge debate right now about what the economy is actually doing i mean, we really are getting mixed messages and i think it's pretty clear that the economy is slowing, right? we are not tracking for 3.1% as we saw in the first quarter, but how much - >> what did you expect what did you expect -- what did everybody expect at the end of last year for the first quarter of this year, sara >> a lot lower than 3.1% i get it.

>> right, right, right if they can't get in the right zip code for a number that big, what we're discussing, a number in the weeds, they have no prayer no human does. that's the big issue we are not moving as fast as we did. maybe this is the quarter we have the give back the end of the year i am really confident that all of those record highs that we see in stocks will be higher records than they are today. >> rick santelli, thank you very much stay close we await fed chairman powell and his questions from the senators, guys we continue to see a rally david, with that tweet where the president said that china is not playing ball on the agriculture products, if feels like with powell sort of committing to july cutting, it eases the pain a little bit and sting of those negative trade headlines. >> the market under pressure from a story we discussed and worth revisiting again, this plan that was reported by axios that the white house is now abandoned -- it would have overhauled the rebates collected by pharmacy benefits managers.

and they are no longer going to be pursuing that drug stocks are down sharply pbms are up. here is chairman powell. it's partners. the federal reserve has played a significant role in overseeing data protection and privacy across the u.s. financial system, including payments cryptocurrency papts, particularly those based on blockchain, technology, pose a number of new challenges for data protection and privacy and the effective oversight of those issues i'm sure that the members of the federal reserve have been looking at this and i would be interested in what your understandi understanding at this point is of how the federal reserve's role for data protection and privacy with respect to traditional financial services can be applied to libra and calibra. >> thank you

i would start by saying that we do support responsible private sector innovation in the financial system as long as that's carried out in a way that addresses the associated risks and preserves safety and soundness. so the project sponsors hold out the possibility of public benefits including greater access to the financial system for some, but i think we agree that libra raises a lot of serious concerns those would include around privacy, money laundering, consumer protection, financial stability, and those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds so we've set up a working group to focus on this at the fed and we are in contact with the other regulatory agencies. indeed we are in contact with central banks and governments around the world on this and really just getting started. i would just stress i think it's a great thing that you are having a hearing on this, i guess next week.

i think that it's important that this process of understanding and evaluating this proposal be a patient one and not a sprint to implementation. in terms of the u.s. specifically about data privacy, one of the features of this project is you would want to see a particular regulatory body that has oversight over the whole project. that doesn't appear to be the case there isn't any one agency that can stand up and have oversight over this. we do not have oversight over facebook the privacy rules that we apply to banks, we have no authority to apply them to facebook or to libra or to calibra or to the libra association. so we are just in the process of thinking this through. i think one of the notable features of the project is that the supervision and regulation of it would fall in many -- in

front of many, many different agencies, state, national, and international. and we need to get our arms around that for starters >> thank you and you have actually led into my second questionon that. i was going to talk about how we fit in, all of our banking regulators, the s.e.c., cfpb and beyond even financial regulators to capture the entire scope of not just this, but many other aspects of the data collection that's going on in the global experience that we are having, the human experience we are having on the internet these days do you think that we need to look at the possibility of creating a new regulator dealing with data protection >> i think that is exactly the question we need to be focused on one of the many questions we need to be focused on. it isn't obvious from our current regulatory system in

place what we need to assess and provide oversight over this, and i expect we will be working hard on this and ideally working with your staff as we explore it. >> thank you and i look forward to -- i'm glad to hear you have a working group together and you are reaching out to other regulators who have a piece of that issue and the broader issue of data collection and look forward to working with you on this senator brown. >> thank you, mr. chairman thank you for your questions about facebook clearly this alternative banking system clearly implicates monetary policy and payments and regulatory issues. your concerns, i appreciate the concerns you expressed talk in a little more detail this risk this alternative facebook currency would pose to ordinary people. >> i think you start with privacy. and the privacy of financial data and then it moves quickly, i

think, into the question these things become, is the blockchain going to be so private that it becomes a vehicle for somehow evading money laundering rules and that kind of thing there is a balance to be struck there. in addition, the very -- the potential scale of this given the size of facebook's network means it could be essentially immediately systemically important. i think the company has acknowledged that. i would echo what you quoted what governor corny said this should be subject to the highest expectations in terms of privacy and regulation the question is who is going to provide that and how and when. i wish we had an easy answer that's the question. >> you, in response to the chairman's question, mentioned you have been in touch with central bank, your counterparts in central banks can you tell me what you are

hearing from them, whatever publicly you can tell us what you are hearing from other central banks? i know china and japan and britain. just your thoughts. >> i think, you know, everyone wants to start with the proposition that we want there to be innovation in the financial system we don't want to be, you know, just reacting negatively to innovation we want to find a way to incorporate it there are serious concerns all around the table on how this will fit into our regulatory system and what it will really mean so i expect we will be making quite a bit of progress. there is a g7 meeting in paris next week and i know it will be a topic there. and so i think we are at the early stages really of understanding -- i think we understand what's in the white paper and that sort of thing, but what are the right ways to assure that the public is protected and the financial system. >> the working group that the two of you talked about certainly let us know, give us

regular updates on where you are going and what you are suggesting the fed's latest monetary policy report says credit standards for new leverage loans are weak and have deteriorated further over the past six months. a slowdown in economic activity could pose risks to borrowing firms and their creditors. they are companies that employ millions of people including many in the retail sector. how would a crash in the leverage lending market decrease economic activity and how would it affect employment >> i think the thought is that if the business sector as a general matter has a lot of debt, companies that are highly levered will be more affected by an economic downturn should one happen they will be more likely to cut back on capital expenditures and maybe hiring and that sort of thing. so highly levered companies are more vulnerable to economic shocks i think that is the nature of the risk we see around leveraged lending. we don't see it akin to the

risks that existed before the financial crisis which were more risks it the financial system as such most of this risk is now held in market-based vehicles which have stable funding not all of it, but most of it is held in that so it is really for us, a macroeconomic risk we called it out and we are looking hard at those vehicles and assuring that they have stable funding as we believe they do for the most part. >> and we need you to pay special attention to those risks, as you know let me talk about ccar the fed approved capital distributions from the largest banks not surprisingly you can expect the largest banks will spend tens of billions of dollars rewarding themselves and investors with dividends and stock buy-backs. that has been their history. that's likely to be their future this clearly doesn't help workers and consumers. why does the fed continue to approve these exorbitant capital

plans that direct so much money away from the real economy >> the sense of the stress test is that after the shock that we apply, global market shock in the case of the large institutions and economic shock to the who arothers, the banks t exceed certain minimal capital requirements those requirements are higher than the actual level of capital that the banks had in 2007 that is their obligation above that they can -- if they have capital that's well in excess of that or if they have -- then they have the ability to pay dividends as long as they meet that test it's a consequence of the fact that we have spent a decades with stress tests and requirements having the banks raise capital higher and higher and they are now in a position to pay out all of their earnings for that year and still be in compliance with the test with a margin of error, and a margin. that's really where we are >> thank you much.

>> senator shelby. >> thank you mr. chairman, sean payton, thank you chairman powell, thank you for your service thank you for keeping the federal reserve independent of both parties and do your job for what it was set up to be we salute you for that several things you have touched on mr. chairman, before i get in a few questions, i'm going to try to stay within the five minutes. i have a number of questions i'd like to ask for the record without objection, if you would. >> without objection. >> thank you you mentioned trade as a cloud perhaps on the economy you know, some uncertainty there. we all know the economy is the best that i have seen in my lifetime at the moment we want to sustain that. trade is one way to sustain it if we have certainty there that's not the only one. would you elaborate on that, how important that is to the economy? >> i will. i should start by saying that

we, of course, play no role in setting trade policy no one should construe anything we say -- i say about trade -- >> what we do -- >> but shouldn't be construed as a criticism. those are assigned to you and to the administration what we get from our business context, and i imagine this is fairly widely the same as what you are hearing, is if you are a manufacturing company in the united states these days of any size you probably have a supply chain that goes across international lines. and that's a really important part of your business. so the trade negotiations that have been going on have injected uncertainty for those businesses into their supply chain. many of them have moved their supply chains. some moved them to mexico and found that mexico might be the target of tariffs. others are considering what to do in any case, at a minimum it's a distraction from going out there and, you know, rolling out new products and that sort of thing. so it is -- it shows up a lot in

the beige book just an overall concern. i think it's weighing on the outlook. it seems to be weighing on the outlook. we see weakness in manufacturing and in investment and trade in the united states, and that's where it shows up. >> your mandate is chairman of the fed, is to do what you can for full employment and also price stability. sometimes you have to balance that, as we all know it's very important to our monetary system. and i think overall you are doing a good job on that i do worry down the road about inflation, as you do, and so far it seems to be fairly tame at the moment and so forth, but we have observed in the past that there has been some type of relationship in previous years between inflation rates and unemployment rates

unemployment goes way down, more jobs, there is pressure on walks and salaries and special olympics forth is there a new paradigm out there as far as evaluating this today and is it because of the global economy what is it because we have low unemployment but we have at the moment not a lot of pressure from your testimony and what we observe on inflation. >> the relationship between slack in the economy or unemployment and inflation was a strong one 50 years ago. if you remember, in the '60s there was a close correlation there. that has gone away and it's really - >> but we had a different economy then, did we not. >> very different in so many ways in this way, i would say that period at least 20 years ago that period was over, and the relationship between unemployment and inflation became weak. it's become weaker and weaker and weaker

in addition to that, i think we are learning that interest rates, that the neutral interest rate is lower than we had thought. i think we are learning that the natural rate of unemployment is lower than we thought. monetary policy hasn't been as accommodative as we thought. i think we are learning all of those things at the end of the day there has to be a connection because low unemployment will drive wages up and ultimately higher wages will drive inflation. but we haven't reached that point. in any case, that connection between the two is quite small these days >> what is your take on the ability for the german nation to borrow money their bund at a lower rate than we do, say a ten-year bund is it what we know in economics, the least likelihood of defaumt? what is that they are borrowing money around 2% lower than we are >> i think it's a range of factors, and i wouldn't know

them for sure. i would say it's low inflation in europe. that goes into rates it's also the amount of quantitative easing and asset purchases that the european central bank has done. it's also expectations of slower growth all of those things, i think, goigo into driving those extraordinarily low sovereign rates. >> thank you. >> thank you, chairman powell, for your service during your testimony in front of the house financial services committee you stated that any problems that could emerge through libra would, quote, arise to systemically important levels because of the mere size of facebook. is facebook simply too big to build its own digital currency >> i think it's early to say that i think we are at the beginning of assessing that. i think the size of their network does focus attention on the very likely systemic importance of this currency. that doesn't mean they shouldn't

do it. it means that at a minimum it means that the standards that need to be applied to it will be the highest. >> as such then, if libra moves forward, is it possible that our concerns rise that we will have another too big to fail institution tethered to the u.s. economy? >> i certainly hope not, senator. again, we are at the very beginning of assessing all this. i don't know that this would be -- that facebook itself -- i mean, libra is actually 28 companies, including facebook. i don't know that facebook would be too big to fail no matter what happens with libra. >> i was referring to libra. if libra moves forward as a cryptocurrency, should f sock consider classifying libra as a non-bank - >> very good question. we haven't had a principals meeting since this has been announced. there have been staff level meetings on it it's the treasury secretary's

lead there, he is the chair. >> i assume you have some comments and say on that. >> absolutely. >> we have seen what happens in countries like venezuela when central banks stop making decisions based on economic data and instead change monetary policy to suit the political goals of those in power. the results are pretty ugly. now, of course, i don't always think the fed gets things right, but our system is infinitely superior to one where the president dictates interest rates, especially when we are heading into elections president trump has on several occasions threatened to either fire or demote you in what is clearly an attempt to intimidate you into taking certain actions. i think i speak for all of my colleagues when we applaud your efforts to keep the federal reserve as an independent and non-partisan institution so in your monetary policy report you talk a lot about how

uncertainty is holding back economic growth. is it fair to say that the president's comments about you and the fed's monetary policy decisions are contributing to that uncertainty >> i would be reluctant to address that i think we are really referring to uncertainties around trade and global growth in what we said in the monetary policy report. >> okay. so then let's turn to that if it's trade and monetary, if it's trade, you noted several times that uncertainty over trade policy is weighing on the economy. and i can tell you not a week goes by i don't hear from folks in new jersey that they are fighting it harder to grow their businesses and hire more workers because of the administration's unpredictable trade policy when you talk about quo quote-unquote uncertainty in trade policy, isn't what you are really talking about the

president's unpredictable behavior and his obsession with tariffs, which are really just taxes on americans, probably the most stark example of this when the president put tens of thousands of american jobs at risk by threatening tariffs on mexico to address an issue completely unrelated to trade? would you agree that threatening to put tariffs on imports from the second largest trading partner in the world on an issue completely unrelated to trade has increased uncertainty and held back our economy in the past few months? >> i think businesses like people like a settled rule book. they like to know what the rules are so they can act as aggressively or carefully as they want to, and i think when you go through a series of trade negotiations with your major trading partners, inevitably there will be uncertainty around that that's not to judge whether these conversations -- not in judge them in any way. >> i'm not talking about --

excuse me, mr. chairman. i'm not talking with trading negotiations in general. i'm talking about using tariffs for non-trade purposes that creates uncertainty every ceo i had when we were talking about, you know, tax reform, they would say to me, regardless of what policy you come up with, give me predictability and certainty and i'll figure out a way to make money. certainly it becomes enormously unpredictable when tariffs are used for non-trade issues? >> i think the reaction to that was actually pretty strong in the business community. >> thank you >> senator toomey. >> thank you, mr. chairman welcome back, mr. chairman good to see you here i just want to follow up a little bit on a point that senator menendez was making. i, too, observed parts of your testimony before the house financial services committee yesterday and i noted that you were asked whether you intend to

serve out the entirety of your term and you said you definitely are intending to do that i, for one, am grlad to hear that's your conclusion i think it's important that the fed remain insulated from political pressure i also want to say for the record that i think you have done an outstanding job. wie remind my colleagues, the day you were sworn in the fed funds rate was close to zero we had an enormous balance sheet. we had not exited the extremely abnormal policy that we had pursued for about a decade and i think that was a very dangerous experiment and the unwind of that had no roadmap. there was no precedent we had never experienced this before and the central banks and other parts of the world were not in the process of normalizing and so you had to figure out a way to do that because i think you believed that it was important to normalize

and you went about doing that and we went about doing some things on our side we did major tax reform. we rolled back some regulations that we thought was excessive. and what's the result? what are the results of that work the result is the strongest economy of my lifetime 3% economic growth last year 3% in the first quarter of this year record low unemployment. record job creation. we now have more job openings than we have people looking for work we helped to expand the productive capacity of the economy. the economy has responded tremendously and now we're seeing an acceleration of wage gains which are strongest at the low end of the income spectrum. so this policy and this economy is narrowing the income gap, the wealth gap and mr. chairman, we used to have an expression for an economy like this. we used it to gall it the goldilocks economy

strong growth, very low unemployment, rising wages and very low inflation that's exactly what you hope for in an economy. i'm not suggesting you get all the credit for it. we certainly don't get all the credit for it. but you were able to normalize from this very strange experiment, and here we are with some terrific consequences that leads me to my question in light of the strength, the fundamental strengths of the economy as i see hthem, and i acknowledge there are doubts and uncertainties, there always are, but i have to confess i have been a little surprised to see over recent weeks that the markets has estimated about a 100% certainty we are going to get a reduction in the fed funds rate i am not asking you to tell us what the committee is going to decide to do the end of this month. in light of the strength it's surprising to me the breadth of the consensus that we are going to lower interest rates. one of the things that i wonder

about is to what extent is this driven by market-driven interest rates? as you know, the yield curve is trading below the fed funds rate i think you have to go out to the 20-year maturity to get close to where fed funds are maybe that's the private market telling us the price of money should be lower than it is i just wonder how you think about the fixed income market, especially the treasury markets, to what extend does that influence the judgment of you and your colleagues in determining where interest rates should be? >> thank you, senator. so we see it quite similar think to the way you described it. the u.s. economy is in a very good place, but we also see those uncertainties i mentioned as weighing on the outlook and see some weakness in the united states economy, housing,

manufacturing, trade so i think we have signaled, and central banks around the world are seeing weakness everywhere and they are also providing more accommodation. we have sig snanaled we are opeo doing that and you are seeing that in the curve now. you are seeing that embedded in the united states' interest rate curve, the fact that we have said that we are going to -- >> it seemed to me that the yield curve was suggesting that even before. >> it was. what does that reflect i think it reflected the real concerns that arose really beginning in may you saw business confidence surveys gapping out and, you know, quite negative fairly broadly. it was a real -- a bit of a confidence shock now, i think some of that is recovered. that, in part, is because we stepped forward and indicated that we are -- that's what happens, is we address that through our policy and indicate

at our last meeting we were looking at changing rates. i mean, the bottom line is the economy is in a very good place and we want to use your tools to keep it there. it's very important this expansion continue as long as possible >> thank you very much, mr >> thank you senator tester >> thank you, mr. chairman ranking member brown, i also want to echo what many of the members have said already and thank you for the job you're doing, chairman powell i very, very much appreciate it. i think i'm going to start here. it was in '07 or '08 that we had a hearing in here with the secretary of treasury when he said that we were on the cusp of a total financial meltdown we're looking tat an economy tht is flying right along. we're racking up debt of $1 trillion a year. we've got a president that puts tariffs on at whims, without any exit strategy with the tariffs

we've got allies that have been pushed away. we're witnessing china's influence internationally, that's been incredible and plus, their investment and infrastructure in their own country. we're seeing health care becoming unaffordable. we're seeing higher education becoming unaffordable. and we've invested virtually nothing in infrastructure in this country, especially when we look at a 12st century economy i remember that hearing that we had in this banking committee very, very vividly, because the question i asked of the treasury is, how come we hear about this when it is such a crisis situation, that we're looking at a financial meltdown situation worldwide? and he had been in front of our committee. you were not secretary of treasury, but we had a very important job. he had been front of our committee before and never said a word about it.

so my question to you is, since your job is very, very important in looking at the underlying factors, what is the thing you're looking at or the two or three things that you're looking at that would tip the scale? because i think there's a lot of things going on right now that is very concerning, even as we talk about low unemployment, weapon also failed to mention the fact that many of these families have to work multiple jobs to be able to afford even to rent a house. so could you tell me what the underlying factors that you're looking at that would give me assurance that this strong economy is actually as strong as we think it is >> i -- so in terms of our economy, in the near and medium term, i think we really are in a good place mainly, the consumer part of the economy is pretty much in tact that's 70% of the economy. you've got low unemployment, good job creation, rising wages, you've got people spending, all of that is -- housing is more or

less sideways and you don't see -- you don't see sort of the kind of risky problems that you saw before the crisis. so those are all good things you see some weakness in the business sector here, and that's really tied to manufacturing around the globe that is the thing i worry about, you see -- if you talk to international economic authorities, people are very concerned about global growth. and we will feel that over time. that's the main thing i worry about. the other thing i worry about and i mentioned some of these is just the longer run issues that we face as a country we don't want to be at the bottom of the lead table on labor first participation by prime age workers. we don't want to have an opium problem -- >> that's correct. so i guess there are a lot of things out there that are cruising along as we look at it. and i will tell you that the infusion of $1 trillion off the credit card every year into this

economy, i would say has a pretty significant effect on its ability to grow. you give me $20,000 a year extra, i guarantee i'm going to spend more money and things are going to happen. but i've got to pay that off at some point in time does the debt -- does the debt come into this equation at all and then, if you want to address the debt limit, potential playing games with that, you could address that, too. >> household debt is actually -- >> i'm talking about national debt >> national debt, that's different. no, i would say, the united states' federal budget is on an unsustainable path i think we all know that and it's something that will have to be addressed at the same time, we're the world's reserve currency we borrow very cheaply and there's no competitor really in the current time frame in terms of another reserve currency. so what will happen, i think, is we'll just spend more and more of our precious resources paying interest on debt as opposed to investing in the stuff that we really need. >> okay.

i'm out of time. thank you very much. i do have some questions for the record and i want to talk about the impact that these tariffs are having on ag and what you're seeing with the bigger banks and the smaller banks, but thank you for being here, chairman powell. >> senator cotton? >> welcome back, mr. chairman. >> thank you >> last time you were here, we spoke about the labor share of income and why more profits aren't going down to regular workers. today, i would like to explore a related concept on economic mobility, on that front, i would like to say, i'm pleased to be sharing next week a subcommittee with senator cortez masto. there was an interesting article today in the "wall street journal," based in part on your s semi-annual report that mentions the record expansion surprise winner, the low-skilled. it and talks about how so many people who had been on the sidelines have gotten back into the economy, including some of

the groups that you've mentioned, that traditionally had been hurt the worst in recessions, minorities or the youth, disabled and so forth but it also says that it takes on average eight years for less-educated workers to recover the wages they lost in a recession. that's much shorter for college educated and those more highly educated so mr. chairman, i want to get your take on whether upward mobility depends in part on strong economic recoveries making it all the way into the 8th or even the 9th inning, so to speak and are we currently in that state of recovery, in the 8th or 9th inning, maybe even in extra innings. >> the good news is, we are in those innings and we are seeing that and it's very gratifying to speak to people in low and moderate-income communities that work there or live there or both and have them say that they haven't seen a labor market like this really ever and it's very, very tight. and that means employers are looking through all kinds of

blemishes on resumes and hiring people and they're training people up and things like that so that's really good. that's the good news the bad news is, as that box indicates, that started about eight years into this recovery so that isn't really a great national strategy, to wait eight years -- we don't have that many expansions we need a better strategy than that because it's working now, but ultimately, the last time we had an expansion this long was 50 years ago. it's -- they don'ttend to last this long. and it also underscores, again, how important it is for us to keep this going, because a couple of more years of this, it's going to be very beneficial to those communities >> so, i want to highlight your remarks a couple of months ago at a federal reserve conference. you noted that the widening gap in economic status and prospects between those with a college degree and those without one i'll quote more directly from your speech to illustrate just how wide that gap has become

in the 1960s, well over 90% of working age men held a job and there was very little difference in employment between those with or without a college degree. while the share of college educated working age men have fallen from more than 95% in 1967 to around 90% in 2017, it has plunged for others 95% of male high school graduates were working in 1967, but only about 80% of them were working in 2017. among working age men without a high school diploma, about 90% had a job in 1967 versus a bit more than 70% in 2017. that is a pretty stark difference between men with a college degree on one hand and men without one on the other hand what in your opinion explains this new situation, mr. chairman >> so my -- the way i think about this is, what's really -- a couple of major, you know, trends that have been happening, and those are really globalization and the advance of

technology and for many of us, both of those things are advantages. if you're on the right side of those trends, probably, this is the best time in human history for you. but there are people who, because they don't have the training and the skills and the background to benefit from advancing technology, then they fall on the other side of the divide, and that's what you're seeing you're seeing similar patterns maybe not as extreme, but similar patterns in other advanced economies that have faced the same challenges. so at the end of the day, it comes down to an educational system and a society that produces people that have the skills and aptitudes to benefit from technology, increasing technology, more complicated technology and when you have that, you can have declining inequality and widespread prosperity without it, it will be very hard to achieve >> sounds to me like if, say, china, had had a completely open market for american manufactured goods for the last 30 years, but

completely foreclosed the american market in investment banking and management consulting, we might be hearing a different tune out of those who are on the right side of globalization right now. >> i won't ask you to comment on it, though i will note, though, that i think immigration plays an important role here in the period of time you were talking about from the 1950s to the late 1990s, less than 10% of the american workforce was foreign born right now, we are reaching a point of our highest in over a century. and i think it's important that we focus on immigration policy, too, as a role that it plays in bad luck working class jobs, something we'll explore next week on the economic subcommittee thank you. >> senator warner? >> thank you mr. chairman, it's good to see you again. make an editorial comment first. i was proud to support you when you became chair you made a commitment to me that you would realize this job and role required an independent fed chair that would not